Credit bureaus taking closer look at how you use your credit card

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Now there's another reason not to run up big credit card bills this holiday season that you can't pay off.

The three major credit bureaus have started adding new details about credit card payments to credit reports that reveal whether a cardholder is a "revolver" -- someone who carries a balance each month, racking up interest charges -- or a "transactor" -- someone who makes purchases but typically pays off the balance in full.

Credit bureaus say the additional information will help card issuers better target their products to customer needs and better identify people who are the best credit risks. Customers who pose the least risk generally are offered cards with the best rates and terms.

Transactors are "absolutely" less likely to default on debt than revolvers, said Ezra Becker, vice president of research and consulting at the Chicago-based national credit bureau TransUnion.

Credit reports generated for lenders by TransUnion include up to 30 months' worth of credit card payments, he said.

Previously, credit reports contained a card's monthly balance (before payments), the credit limit and whether the cardholder failed to make any minimum payments.

But because the reports typically did not include the actual monthly payment amount, it was difficult to distinguish a revolver from a transactor.

"This is another tool we are giving to lenders to be able to manage risk," Mr. Becker said. "The idea is everyone should pay for the risk they present. If you treat everyone the same, the low-risk people subsidize the high-risk people."

The other big credit bureaus, Experian, based in Costa Mesa, Calif., and Atlanta-based Equifax also started adding the historical monthly payment data within the last year.

For now, the new payment data won't be factored into anyone's credit score. That's because it takes time for credit scoring companies to run models to confirm that the information helps predict credit risk.

"We need a two-year window of new data on a credit report before we can evaluate whether it's predictive information of a person's ability to repay debt," said Anthony Sprauve, spokesman at FICO, creator of the widely used FICO credit scores.

In the past, monthly credit card payments haven't been reported consistently enough by issuers to be studied as a factor in credit risk, he said.

Under current models, people who consistently pay their bills on time and keep their balances low so they don't use too much of their available credit typically have the best credit scores.

Americans owe some $850 billion on their credit cards, according to the Federal Reserve. Among households that carry credit card debt, the average owed is around $15,000, a number pushed up by a relatively small number of families in extreme debt.

Linda Sherry, director of national priorities for the consumer advocacy group Consumer Action in Washington, D.C., said that in general she thinks adding credit card payment amounts to reports is a good thing, especially if the information ends up being used to calculate credit scores.

"I think it's great that people are getting credit for paying in full," Ms. Sherry said. "I pay in full, and I like the idea it will be showing up."

Still, she has some concerns that card issuers might use the data to penalize the transactors, such as raising certain fees to compensate for not making money on interest charges.

"It's hard to say how it will play out," Ms. Sherry said.

TransUnion's Mr. Becker said it's more likely that card issuers will use the information to better tailor their offers to customer needs. "Say every December you run into payment trouble. Maybe a one-month relief program -- an offer to skip a payment -- would be a nice program for you," he said.

Conversely, big spenders who pay down their balances every month probably would rather be offered a cash-back or other type of reward card, Mr. Becker said. "The better lenders are at understanding what you do with your cards, the better able they are to offer a card appropriate to your needs."

In the meantime, paying off balances to avoid interest charges is always a good idea, said Gerri Detweiler, director of consumer education at San Francisco-based Credit.com.

People who can't avoid carrying a balance can still maintain a good credit score if they don't use more than 10 percent to 25 percent of their available credit, she said.

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